Ms. Maureen Bolton

GLG News by Ms. Maureen Bolton, Principal

GLG News is now G+ Insights

G+ is a community for professionals, academics and entrepreneurs to connect through online discussions and in-person meetings. You will continue to see G+ Insights (formerly GLG News) here as well as on the G+ website, where you can share and discuss the G+ Insights you read.

Friends With Benefits

February 16, 2007

Analysis of:A Cautious Welcome | www.economist.com

This article is a concise description of the economic and political relationship between China and Africa.  Worth reading, since the impact of this relationship is broader than one would assume.

Subprime Market a Boon to Most Borrowers

February 9, 2007

Analysis of:The Politics of Subprime | online.wsj.com

This WSJ editorial is a persuasive, cogent response to the current Hill hearings on subprime mortgage delinquencies.  After expressing some doubts about certain attendees of the hearings, the author concludes that the major complaintants of subprime mortgages are the same folks who would be putting political pressure on lenders to provide credit to subprime borrowers.

The author concludes by simply comparing  the size of the subprime mortgage market with the percentage of subprime loans that are seriously delinquent.

Inadequate Research and Definition of Industry Terms Belies Portrayal of SubPrime Borrowers

December 14, 2006

Analysis of:Subprime Borrowers are Falling Behind on Payment | www.wsj.com

This article, which was published on the front page of the Wall Street Journal on December 5th, is a prime example of how lack of knowledge of an industry can lead to incorrect or unsubstantiated interpretation of market trends and data.

The authors report that "Subprime" borrowers are increasingly delinquent and that investors in Subprime mbs could lose principal even on investment-grade rated tranches, something that has never happened (except in the incidence of fraud) in the entire history of the US mbs market.


Since the authors do not provide the readers with an objective definition of subprime, or other salient facts which are essential to the article's message that subprime market participants are in danger, this article should be read with significant skepticism.

Subprime Originations Adapt and Endure

October 6, 2006

Analysis of:Trends in US Residential Mortgage Products: Subprime Sector 1st Quarter 2006 | standardandpoors.com

1)S&P's position as a lead rating agency for subprime mbs enables it to obtain market data that would otherwise be unavailable.  Therefore, their quarterly trend reports are an especially accurate review of subprime market trends.
2)The report summarizes data from all originators of subprime mortgages that are securitized in S&P rated mbs and all securitizers (including Wall Street conduits) of subprime mbs.
3) The report contains details such as type of subprime products originated/securitized, characteristics of such products and break-down and credit enhancement levels for subprime pools.

Will 40 year mortgages impact mbs performance?

October 6, 2006

Analysis of:Fitch Special Report: 40,45,50 Year Mortgages;Option ARMs, Hybrid ARMs and FRMs | fitchratings.com

This Special Report issued by Fitch on June 19th is the first analysis issued by one of the major rating agencies which addresses the latest  trend in mortgage products -longer durations.

The current interest rate and housing markets provide fertile ground for such products, since they are widely believed to increase the affordability of homes and to reduce payment shocks for borrowers with hybrid ARMs that are about to convert from their fixed to floating rates.

Fitch's research indicates that, while longer duration mortgages make up an increasingly percentage of rated mbs, any negative impact due to increased credit risk is minimal for the following reasons: a) 40+ Option ARMs hit their negam cap much earlier than 30 years b) the difference in interest rates between 30 and 40yr mortgages is only 25bps, hardly enough to attract current 30 year borrowers and c) the minimal difference in monthly payments is not likely to entice borrowers to 40 year durations as a way of buying more house.
Fitch concludes its analysis by illustrating how rapidly the negative impact of payment shock and negative/minimum equity can increase for 40+ mortgages that are structured with 30 year amortizations. 
A comparison is made between the final balloon payment for a 40 year duration mortgage and a similar 45 year mortgage. After 30 years, the 40 year borrowers owes 55% of the original principal balance and the 45 year borrower owes 69% of the original principal balance. 
The payment shock from 2/28 hybrid ARMs pales in comparison.

Merrill joins the quest to benefit from the rumoured housing bust

September 7, 2006

Analysis of:Merrill Lynch to Buy National City's Mortgage Unit | www.bloomberg.com

This article is important because it announces the fourth investment bank to acquire a residential mortgage originator/servicer in the past few months. Deutsche Bank, Barclays and Morgan Stanley all beat Merrill to the punch, having previously announced their intended acquisitions.

Recently released economic data and reports of residential lenders increasing their loan loss reserves have caused the media to hail the arrival of the long-predicted housing bust. Analysts at major investment banking firms have concurred that it is time to get out of mortgages, which makes one wonder, why aren’t these firms taking their own advice?

Morgan Stanley Makes Key Investment to Support MBS Business

August 15, 2006

Analysis of:Morgan Stanley to Buy Saxon Capital | biz.yahoo.com

Morgan Stanley’s recently announced acquisition of Saxon says more about its belief in the US mbs market than any analyst report could possibly say.

After a year to date deluge of data allegedly projecting the bursting of the US housing bubble and the consequent demise of the US mortgage market, the fact that a major Wall Street firm that isn’t Bear Stearns or Lehman Brothers (and therefore doesn’t already have a huge mortgage book it needs to protect) is making a bet that the US mbs market will prevail is bullet-proof evidence that it will.

Wizard Takes On the Banks of Oz

August 15, 2006

Analysis of:Wizard applies for banking licence | www.theage.com.au

This article is relevant to all interested in the relatively mature Australian consumer finance market and the high-growth potential for consumer finance in the emerging markets.

With respect to the Australian Market: GE Money, the owner of Wizard Home Loans, is well known for their focus. They limit their entry into areas where they can dominate, i.e. become number 1 or 2 in the market.

With respect to the Emerging Markets: In addition to describing Wizard Home Loan’s application for an Australian Banking License, this article also refers to an announcement by GE Money’s CEO that Wizard International, will begin operations this year. Wizard International’s three principal investors are Mark Bouris (the founder of Wizard Home Loan) GE Money and private investor, Consolidated Press Holdings. It’s first market? India.

Title Insurance -Is it worth it?

August 2, 2006

Analysis of:Oxley requests GAO title insurance investigation | fpn.advisen.com

This announcement of Rep. Oxley's request is important, since it calls attention to a little understood service that adds to the non-interest costs of mortgage originations.
As competition for mortgages continues to increase, lenders are focused on maintaining growth and revenues by either a) passing on the price of associated service providers, such as title insurers or property appraisers at above market costs or b)requiring borrowers to obtain such services when they may not be necessary, such as when the mortgage is a refinancing of a loan originated less than a year ago.

Slow and Steady is Proper Approach in Current Environment

August 2, 2006

Analysis of:Mortgage slowdown hits GoldenWest | biz.yahoo.com

This Yahoo Finance Article highlights Golden West's recent slow down in the growth of mortgage originations and the shrinkage of deposits.  While such a deceleration in Golden West's asset generation and funding sources could call into question Wachovia's wisdom in acquiring this thrift, it can also be interpreted as evidence of Golden West's considerable experience with similar market conditions in the past.

The use of servicing to maintain strong NIM income

August 1, 2006

Analysis of:Slowdown? Not at Wells Fargo | mortgageservicingnews.com

This article describing the growth of Wells Fargo's servicing portfolio is a good illustration of one alternative dominant US lenders can use to maintain earnings in a declining market.

Equity investors, in particular, should read this article as it clearly describes Wells' strategy and how it is implemented.  It can be used as a basis for which to compare Wells to similar lenders for purposes of evaluating their plans for protecting NIM income during the projected market downturn.

Economic Data Contradicts Abelson's Prediction of Housing Bust

June 26, 2006

This article contains a selective synopsis of data supporting Mr. Abelson's dire prediction of a housing bust.  Among the scary statistics included in the article are:
-US$1trillion of mortgages are hybrid ARMs currently in their fixed period and are set to changeover into their floating rates this year.
-In addition, the article contains information regarding the amount of equity US homeowners currently have and Mr. Abelson's predictions as to how such equity will diminish if current home prices continue to drop.
-Finally, Mr Abelson gleefully hypothesizes about a limitless downside, once all of these borrowers realize that they cannot afford their new ARM payments and can't sell their houses due to the amount of their negative equity.
If your boss hasn't read this article already, she is either on vacation or reading it now -you'll need to prepare an impassioned response to reassure her that Alan must be looking at a Florida vacation home ..... since the recently announced new home sale numbers directly contradicts his column's bashing of the US real estate market.

Harvard isn't Worried About Housing Bust

June 16, 2006

Analysis of:Housing Boom 2.0 | money.cnn.com

This article is a useful summary of the report recently issued by Harvard's Jt. Center for Housing Studies on the current state of the US Housing market.

It contains demographic information and interpretations of such information by industry experts, such as Nicholas Retsinas, former FHA commissioner and presently head of Harvard's Jt. Center for Housing Studies.  Information about the amount of equity US homeowners currently have in their homes is deemed to provide enough of a cushion to protect homeowners with complex mortgages such as IOs or option ARMs

Bottomline -data indicates that the US housing boom is coming to an end. however, US demographics indicate that continued demand will limit the amount of appreciable housing price declines.

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